Abstract

The fixed exchange rate mechanism set up in China, together with government control over capital movements, correspond to a deliberate policy of a gradual and controlled opening up of the economy. The accumulation of current account surpluses and the rise in the level of the country’s foreign currency reserves, reflect both the successes and limits of this strategy. They are provoking reactions on the part of China’s main partners, many of whom are demanding that the exchange rate system be made more flexible and that the yuan be re-evaluated. This latter move appears to be inevitable, but could actually come to happen in real terms, through a rise in prices within the country. This could render unnecessary any immediate change to the exchange rate system. Government authorities are indeed wary that China may not yet be quite prepared for such a change, which would imply the liberalization of financial markets and the strengthening of the national banking system.